UNITED ARAB EMIRATES: An Introduction to Private Wealth Law
The United Arab Emirates (UAE) has in recent years become the destination of choice for global high net worth individuals (HNWIs) and ultra high net worth individuals (UHNWIs) and families. In 2022 alone, 5,000 millionaires and billionaires moved to the UAE, the largest net inflow of millionaires globally. This exceeded earlier projections in the Henley & Partners Global Citizens Report, published in September 2022, which studied the movement of private wealth around the globe. In addition, the UAE has a significant number of family businesses, owned by UAE nationals and expatriate (expat) residents, who contribute to the country’s economy. It is expected that in the next decade these families and others in the Middle East will transfer AED3.67 trillion to the next generation, which illustrates the need to provide them with specialist support.
The country has excellent infrastructure and education options, offers a quality lifestyle and is seen as a cosmopolitan, safe place to live. Significant private wealth now resides within the UAE and the government, alive to this, has implemented a number of private wealth and expat-friendly laws, services, regulations and initiatives to ease the setting up of family offices, family businesses, estate and succession planning. In 2019 the UAE government introduced the ten-year golden visa, which has been hugely successful in attracting HNWIs and families to the country, and in 2021 100% foreign ownership of companies was introduced (previously it was limited to 49%).
Global financial institutions and private wealth banks have also flocked to the UAE. In early 2023, Swiss group Edmond de Rothschild opened a new hub in the Dubai International Financial Centre (DIFC) and in 2022 HSBC opened an onshore private bank in the UAE to service clients with assets worth USD2 million or more. Local banks have also started offering private wealth services by enhancing their wealth and asset management offerings.
The Legal System
The principles of the UAE’s laws are drawn from Islamic Sharia – thus, criminal and civil issues are dealt with according to these laws. Most codified legislations in the UAE are a mix of Islamic laws and other civil laws derived from Egyptian and French law. However, a number of the emirates, including Dubai and Abu Dhabi, have free zones based on common law, which makes them of particular interest to internationally mobile HNWIs and families. Probably the most well known of all the free zones are the DIFC and Abu Dhabi Global Market (ADGM). The DIFC was established in 2002, allowing foreigners to own 100% of DIFC entities (before the federal law was revised to allow 100% foreign ownership), and is home to many local and international wealth management and private client service providers (stockbrokers, lawyers, accountants, business advisers, auction houses, NASDAQ Dubai, and the Dubai Mercantile Exchange, etc).
The DIFC and ADGM both have a common law framework; they also have their own courts (dealing with civil and commercial cases), as well as a Wills & Probate Registry for non-Muslims. The DIFC has strict anti-money laundering rules, having modelled the legislation on the best practice of regulators in London and New York to ensure that the DIFC is a real contender on the international financial scene. The DIFC was an early proponent of the concept of the Single-Family Office (SFO); in fact, it was the first jurisdiction to define a family office in legal terms. The DIFC also recently launched the DIFC Family Wealth Centre which brings together global family-owned businesses, HNWIs and UHNWIs in one hub where they can access a range of services, including education/training, accreditation and networking opportunities.
Both the DIFC and ADGM have established themselves as regional hubs for wealth and asset management industries, due to the combination of an independent legal ecosystem, the presence of internationally renowned firms of professional advisers, and the pressing needs of a client base demanding the services that such firms offer. For the private wealth community, the increasing sophistication of financial markets means that professional wealth management is a requirement and in the DIFC and ADGM, both similar in terms of sophistication and expertise, with legal regimes derived from English law, HNWIs can draw upon a premier network of advisers to grow private wealth holdings.
In addition, there a number of other free zones, such as Dubai World Trade Centre, which offer flexible family office set-ups and world-class facilities.
The Tax System
There is currently no personal income tax in the UAE. As such, capital gains tax is not imposed on UAE national or resident individuals. Additionally, there are currently no wealth taxes, inheritance, estate or gift taxes imposed on individuals residing in the UAE.
Value-added tax (VAT) was implemented in the country on 1 January 2018 and corporate tax was implemented on 1 June 2023 at a rate of 9% on taxable profits exceeding AED375,000.
Recent Legislative Changes
The DIFC enacted the Family Arrangements Regulations of 2023 in January (repealing and replacing the SFO Regulations of 2011). One of the important provisions is Article 7.6 and its impact on the arbitration of family-related business disputes. Among other things, this introduces innovative provisions enhancing the role of arbitration in disputes arising from family trusts (ie, legal instruments governing the affairs of family arrangements and trusts), which was very welcome in the private wealth arena given the often highly confidential nature of disputes.
The UAE also passed a new family business law, Federal Decree Law No 37 of 2022 on Family Businesses, in January 2023. This law aims to support the continuity of family businesses and enhance their role in the private sector, it provides bespoke mechanisms for the resolution of family disputes, and it provides a flexible, opt-in regime, based on voluntary registration.
Changes were also made to personal status laws applicable to non-Muslims both in the emirate of Abu Dhabi and at the federal level in 2022 and 2023. The passing of these laws was a significant step in making the UAE a more inclusive and attractive country for expats of different faiths, lifestyles and cultures. The laws now enable non-Muslims to access civil marriage, no-fault divorce, automatic joint custody of children, and distribute estates (in the absence of a will) in the ratio 50% to the spouse and 50% to the children, with males and females being treated equally.
Also in early 2022, the Dubai Virtual Assets Regulatory Authority, or VARA, came into effect. It is responsible for regulating and overseeing the provision, use and exchange of virtual assets in and from the emirate of Dubai, thereby giving the virtual assets community within the UAE the support it needs to thrive.
The UAE offers unparalleled opportunities for holders of private wealth in terms of investment, wealth structuring and business opportunities, estate and succession planning, expat-friendly personal status laws, long-term residency visas and a high-quality standard of living. It is no surprise then that the 2023 HNWI inflow is expected to surpass that of 2022, making the UAE the world’s second most popular country for HNWIs and families to relocate to.